Texas Wants to Ban Anonymous Crypto: Is This a Blow to Bitcoin as Well?

Last updated Mar 12, 2019

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Texas Republican Rep. Phil Stephenson has introduced a bill-draft that would require Texans to identify themselves before they use crypto assets like bitcoin.

In Texas House Bill No 4371, Stephenson took the institutionalization of digital currencies to an altogether new level. His bill recognized the blockchain technology as a tool that enables users to create financial aliases.

And, to stop that from happening, the lawmaker proposed that Texas educate its law enforcement agencies on digital currencies and promote the use of verified identity digital currencies.

If enforced, HB 4371 would make a digital currency transaction illegal if the involved sender and receiver are now known to each other. The bill would encourage state departments of banking, securities boards, and others to provide tools to users to distinguish between verified and unverified crypto users. Excerpts:

“[Texas] may not use a digital currency that is not a verified identity digital currency — The Texas Department of Banking, Credit Union Commission, Texas Department of Public Safety, and State Securities Board shall collaborate to encourage the use of verified identity digital currencies.”

Deep Impact or Fizzling Firecracker

With HB 4371, Rep Stephenson might believe that they are on the right course of crypto regulation. If all the cryptocurrency users agree to register their digital currency identities, it will form a bank-like financial system, bringing more stability and adoption to the cryptocurrency space.

But, despite the underlying goodwill, Rep Stephenson hasn’t answered how exactly he would have law enforcement enforce his bill.

To begin with the first problem, HB 4371 requires Texans to be in their best honest avatars. The bill asks them to register their digital currency identities with the government consciously. It is the same as asking Redditors to give up their anonymity, which they fruitfully enjoy because it allows them to say anything they like on social media.

This is a double edged sword for sure and the argument can easily go both ways. When we consider what this means, as with the example of Redditors giving up their anonymity, this is a dangerous inroad to virtual privacy. Privacy is important. It allows us to express un-popular opinions without being attacked. It allows us to add to the conversation in a true way, rather than being forced to parrot an opinion that would be distasteful to the poster.

However, things like AML and KYC exist for a very valid reason and that is to ensure that funds, in whatever format they are in, are not used for nefarious purposes. That may require people giving more details about the transaction they are engaged in but it has a positive ending as it ensures that the funds used from that transaction are not used to harm anyone or participate in illegal actions.

But, there are issues with this proposed legislation. So, the first issue that HB 4371 might run into is the nature of people itself. Meanwhile, the second one is bigger.

There is no way Rep Stephenson’s HB 4371 can stop people from downloading crypto wallets and creating hundreds of anonymous pseudo-identities. Even if his enforcement agencies manage to put a tracker on every public IP in Texas, there is no way they can outsmart people who use VPN services, Tor, etc.

One can take BitTorrent as a bright example. Texans could still be downloading pirated movies and music from the world’s most prominent file-sharing protocol with their servers located somewhere in China – without being caught.

The question then arises is that why a lawmaker would spend vast amounts of resources for catching petty crypto users, primarily when he could utilize the same taxpayer fund to catch giant banking scammers.